Bad News for Economy As Inflation Ramps Up - Dow Plunges 300 Points

Well folks, we finally got the memo that Grandpa Powell won’t be going on a rate-cutting spree after all (Spoiler: it’s looking to be a tiny dip to test the waters instead). Why? Well because this morning's core U.S. inflation numbers are throwing a wrench in everyone's friggin plans. 

(Source: Giphy) 

In short, the core consumer price index (aka the Fed's fave inflation metric—minus the fun stuff like food and gas) jumped 0.3% in August compared to July. That’s bigger than economists were banking on, as it was also the biggest monthly spike since April. Ooof…

(Source: Financial Post) 

Zooming out for the year, core prices did their thing by climbing 3.2%. Which is definitely more than July’s 3.1% and a far cry from the Fed’s dreamland 2% target. Meaning, it doesn’t exactly look like we’re cruising back to normal anytime soon.

Overall, consumer prices did ease up a bit to 2.5% from July’s 2.7%. However, that’s still not enough to keep the Fed from sweating, especially considering how aggressively they’ve been hiking rates for the past year and a half to cool inflation down. Naturally, most would be thinking that inflation would be dipping far more considering everyone and their mom are tightening up their wallets resulting in decreased spending. See: Discount retailers getting "rekt"- aka Big Lots. 

(Source: Nasdaq) 

However, inflation (ever the debbie downer) is showing to be more stubborn than most economists thought it would be about this time. Which means, thanks to the inflation surprise, the massive half-percentage-point rate cut dream is now looking about as likely as finding a free table at Starbucks on a weekday morning as Futures markets are only giving it a 15% chance. 

“So you’re telling me there’s a chance? - every investor reading this, probably

(Source: Know Your Meme) 

This has most analysts thinking we’re more likely to see a 25-basis-point hike instead. Barclays economist Pooja Sriram (she must be tough as nails with that first name) threw in her two cents, saying, “While not welcome news for the Fed, this data shouldn’t be enough to take a 25-basis-point rate hike off the table at the upcoming meeting.” Translation: We’re still getting a rate hike, but probably not the thicc, juicy, veiny 50bps one. 

(Source: Redfin) 

Of course, this shouldn’t be shocking considering Powell has been saying all year that he’s willing to keep nudging rates higher until inflation finally taps out. But considering where we are at with the economy as most are thinking the Fed is behind the curve with action, it’s hard not imagine Powell double checking his math from the core inflation readings we just got.

(Source: Giphy) 

Additionally the other tricky part to all of this is housing prices. As I’m sure you and every other millennial knows by now, Rent and owners' equivalent rent (basically the Fed’s way of measuring how much it costs to live in your own house) are still on the up and up—and since they make up a third of core inflation, that’s keeping the heat on.

Whereas, all of this combined has the markets freaking out today. Stocks and bonds have taken a hit, with the S&P 500 dropping -1.1% and Dow plunging 300 points - with the 10-year Treasury note yield jumping to 3.542% from 3.495% the day before as investors were hoping for rosier news. 

(Source: CNBC) 

But with all of that said, before you start doom scrolling for a quick dopamine hit from the inflation disappointments, remember: One inflation report doesn’t make or break the Fed’s plans. They’ll be keeping an eye on the labor market, consumer spending, and all the other economic tea leaves before they make any big moves. Meaning, right now we are still looking at (atleast) one 25 point cut. But still, I wouldn’t hold my breath on that either. 

In the meantime, stay safe and stay frosty this Wednesday friends! Until next time…

P.S. While traders and investors are glued to the Feds next big move, our last Stocks.News alert shot up 162% in under 24 hours. And guess what? We’re about to release another explosive alert—click here for the details.

Stocks.News doesn’t hold any positions in companies mentioned in the article.